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Strategies & Market Trends : Market Gems-Trading Strong Earnings Growth and Momentum -- Ignore unavailable to you. Want to Upgrade?

To: Jenna who wrote (5500)	2/28/2001 12:11:31 PM
From: 2MAR$	Read Replies (1) \| Respond to of 6445

DJ Fed Watch: Greenspan Kills All Bets On Early Rate Cut By Michael S. Derby Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Alan Greenspan has shut the door on the prospect of an early Federal Reserve rate cut. So say many Fed watchers, including those who'd been placing the heaviest bets that weak economic conditions would force the central bank to lower rates before its scheduled March 20 policy meeting. Some economists had argued that this week was the primary window for Fed action. Fed Chairman Greenspan's testimony, delivered before the House Financial Services Committee, was the key catalyst for this about-face. While he offered a slightly more pessimistic portrayal of the economy than he did in testimony he gave before the Senate two weeks ago, the central bank chief gave no explicit signal that he and his colleagues were ready to cut rates again ahead of its March 20 policy meeting. He said "the exceptional degree of slowing so evident toward the end of last year (perhaps in part the consequence of adverse weather) seemed less evident in January and February." And in response to a legislator's question, Greenspan spoke more forcefully and said the Fed prefers to change rates at the schedule meetings rather than on the fly. The chairman's words have "squashed" any meaningful prospect of an inter-meeting move, said John Ryding, senior economist at Bear Stearns in New York. His firm's chief economist Wayne Angell, a former governor at the Fed, had put the odds of the early rate move as high as 80% as of Tuesday and was the leading proponent of such an action. Others that put better-than-even chances on a move, such as Lehman Brothers, have also dramatically reduced their expectations of early action. Hopes that the Fed would move early - and, in particular, Angell's forecast - were a boon to stock markets on Friday and Monday, and it also put a strong bid in government bonds. At midmorning Wednesday, however, all major stock gauges were off, with the Dow Jones Industrial Average shaving just over 1% of its total value. Treasurys were a tad weaker in shorter-dated issues, which are most sensitive to interest rate expectations. Greenspan's testimony "did not give the impression that he is in a great hurry to cut rates immediately," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. The Fed is either appropriately cautious in the face of mixed economic signals or wrong in "a spectacular fashion" if conditions worsen and the Fed proves too restrained, he added. Ryding said he thinks the Fed is being overly sanguine about the economy. "This testimony shows that Greenspan does not appreciate the significant risks that the economy faces," he said. Delayed Gratification With the Fed now seen moving later rather than sooner, a number of economists who still expect weak economic conditions to prompt the Fed into aggressive policy moves are now raising their forecasts for the Federal Open Market Committee's meeting in late March. Many Fed watchers agree that the debate is no longer whether the Fed cuts its current overnight target rate of 5 1/2% to 5%, but whether it goes even further. The policy discussion now "moves to a 50 (basis-point) or 75 (basis-point-rate cut) debate, as long as we don't get an inter-meeting cut," said Drew Matus, market economist at Lehman Brothers in New York. He now puts the odds at a meager 15% that the Fed would cut ahead of March 20 - on Monday Lehman was citing 60% odds - and he said the Fed would only take such action if the economic landscape between now and then nose-dived. -Michael S. Derby, Dow Jones Newswires; 201-938-4192; michael.derby@dowjones.com (Steven Vames contributed to this report) (END) DOW JONES NEWS 02-28-01 12:10 PM